Switching mortgage half way through a 5 year fixed rate. 30 April 2020 at 4:35PM in Mortgages & Endowments 9 replies 455 views

tommyedinburgh

I was just catching up with a friend on Zoom, he was asking how our house hunting was going.

We got onto discussing his situation, he has a master plan to move in five years as his wife is in the first year of retraining as a nurse. He is smack bang in the middle of a 5 year fix rate at 3.19%, based on the equity he has on his property he could comfortably secure a 75% LTV with his current lender, Nationwide at 1.89%. Given that he would be happy to tie in an additional 2.5 years beyond the end of his current deal, would a lender normally allow a customer to switch mortgage in the scenario described?

EimearF

Its likely that the lender would levy an Early Redemption Charge usually 3-5% of the balance. This would wipe out a lot of the benefit of switching. If the new deal also has a fee even less likely its worth it. Your friend should run the numbers and see if its actually going to be a saving at all. 

tommyedinburgh

EimearF said:

Its likely that the lender would levy an Early Redemption Charge usually 3-5% of the balance. This would wipe out a lot of the benefit of switching. If the new deal also has a fee even less likely its worth it. Your friend should run the numbers and see if its actually going to be a saving at all. 

Yeah, he text me to say that it looks like he has a 3% ERC. If they waved the charge they'd get an extra two years business but I'm sure they won't see it like that.

Bob~24601

Theres no motivation for the lender to allow them to come out early. If they do they earn less money. 

The purpose of fixed rate is knowing exactly how much you will pay for so many years, if you wanted flexibility then fixed rate isn't good. 

Had the interest rate increased so much higher would you be offering to pay more? 

tommyedinburgh

Bob~24601 said:

Theres no motivation for the lender to allow them to come out early. If they do they earn less money. 

The purpose of fixed rate is knowing exactly how much you will pay for so many years, if you wanted flexibility then fixed rate isn't good. 

Had the interest rate increased so much higher would you be offering to pay more? 

Would you? 

EimearF

If he was within 6 months of the end of the fix they would likely waive the fee but they are pretty strict outside of that timeframe. 

Thrugelmir

Probably end up porting the existing product then topping up with an additional one. At 3.19% every incentive to overpay the current mortgage. 

dimbo61

So he has a master plan to move in 5 years.
Nurse training takes 3 years and then 2 years of pay rises.
He should stick with the current fix and overpay every month 
Simple really.
No point in paying ERC and new mortgage fee 
I doubt the savings on the new deal will cover the costs.

tommyedinburgh

dimbo61 said:

So he has a master plan to move in 5 years.
Nurse training takes 3 years and then 2 years of pay rises.
He should stick with the current fix and overpay every month 
Simple really.
No point in paying ERC and new mortgage fee 
I doubt the savings on the new deal will cover the costs.

Yeah, he'd literally be £250 better off it seems.

ACG

tommyedinburgh said:

EimearF said:

Its likely that the lender would levy an Early Redemption Charge usually 3-5% of the balance. This would wipe out a lot of the benefit of switching. If the new deal also has a fee even less likely its worth it. Your friend should run the numbers and see if its actually going to be a saving at all. 

Yeah, he text me to say that it looks like he has a 3% ERC. If they waved the charge they'd get an extra two years business but I'm sure they won't see it like that.

At a lower interest rate and they would incur costs by returning that money early themselves. 
Doesnt make any sense for the lender to waive the ERCs unless your friend agreed to stick with them for probably 10-15 years but even then they wouldnt waive it.